Focus on Costs

Last month, a Chinese equipment manufacturer—speaking at the International Rental Asia Conference, organized by KHL in Shanghai on Nov. 24—cited two more reasons why the rental industry here will grow exponentially in the coming years.

First, Beijing is encouraging a new bidding system that requires contractors to lower costs and show more flexibility in project delivery, said Zeng Guang’an, chairman of Guangxi LiuGong Machinery Co. Also, construction companies that use internal resources, as opposed to government financing, prefer renting to be more competitive in the market. Firms actively involved in renting machinery in China now include Hertz, Far East Horizon, MoonReach and Ajax Pong Group.

China also has thousands of so-called rental vendors with just one or two pieces of equipment, which had been originally bought for use in small projects. They are now being rented out, often with operators, to make the best of the investment.

Competition is growing fierce, and this is seen in falling rental rates, despite rising demand. “We have seen pricing pressure in the Chinese market, year over year, month over month,” Patton of Hertz says.

Even so, the industry still faces a litany of challenges, including “intense competition from small operators, the capital-intensive nature of business, staff retention, high rate of utilization, low returns, high account receivables, financing and taxation problems,” explained Lawrence Poh, chief executive officer of Lei Shing Hong Machinery, which rents out Caterpillar equipment, at the recent Shanghai rental conference. At the same time, he predicted the industry will grow at a high pace in the coming years.

Manufacturers say they are also worried about the payment capabilities of rental companies, which often seek equipment on an easy-payment basis.

“The rental industry has a strong need for finance. They need to be supported, so they can make regular payments to manufacturers,” says Malcolm Early, vice president of marketing at Canada-based Skyjack. The lift-equipment producer, which mainly manufactures for the rental market, has developed some finance tools, such as reduced or deferred payments, to help cope with tight cash.

Additionally, Chinese equipment makers are shifting their product mix to better serve the rental markets, experts say, adding that Asian producers, burdened with overcapacity, are considering joining the rental business, as well.